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Should You Buy or Lease Your Next Car?

If you have children, take part in chauffeuring their soccer team, and are known to feed them snacks and drinks while running errands, you're probably not a good candidate for leasing a car. Between the food stains and the marks from muddy cleats, the lease-end wear-and-tear charges would put you in the poorhouse.

The condition you keep your car in is just one of the many things to consider when contemplating an auto lease. Another is how many miles you typically drive in a year. Still another is how much you look forward to the day your monthly car payments end and you can use those dollars for something else (like saving for retirement or college).

While these issues keep many drivers from leasing, others enjoy the benefits that leasing provides. Dave Edwards of Hampton Roads, Virginia, leases for two reasons: Economy and lifestyle.

"We started leasing because we wanted to get a luxury SUV without having to make a big cash down payment, and we wanted to keep our monthly payments on the lower side," says Edwards. "My wife and I like being able to afford the latest models, even though we recognize that our car payment is an expense that will never go away."

A side-by-side comparison might offer a clearer picture of the advantages and disadvantages of leasing.

Lease

Buy

--Advantages--

No or low down payment

Pride of ownership

Lower monthly payments

Monthly payments end

Lower sales tax (paid only on amount of car value used)

Resale value

Lower repair costs (mainly maintenance)

Lower overall cost of ownership

Manufacturer's warranty usually covers lease term

No mileage limitations

Drive a better car for less money

Flexibility to change cars when you want

Get a new car every few years

Lower insurance costs

No wear-and-tear charges

--Disadvantages--

Insurance could be higher

Higher down payment

No equity built up in car

Higher monthly payments

Lifelong car payments

Repair costs after warranty expires

Wear-and-tear charges

Higher sales tax paid

Typically only allowed up to 15,000 miles/year

Additional mileage 10 to 25 cents per mile

The Bottom Line Cost of Leasing vs. Buying

While most experts agree that buying is more economical than leasing in the long run, some drivers point out that the pleasure of driving an older car is lower. As if that weren't enough to ponder, there may be tax issues to consider as well if you drive for business and can deduct mileage or the vehicle's depreciation. Speak to your tax advisor to see if you can take advantage of this tax benefit.

Obviously there's a lot to consider when deciding whether to lease or buy your next car. Maybe it all comes down to whether you prefer that new car smell every few years or more money in your pocket over the long term.

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